The Value to Management of Using the Internal Audit Function as a Management Training Ground

45 Pages Posted: 16 Nov 2015 Last revised: 5 Dec 2017

See all articles by Joseph V. Carcello

Joseph V. Carcello

University of Tennessee

Marc Eulerich

University of Duisburg-Essen, Mercator School of Management

Adi Masli

University of Arkansas - Sam M. Walton College of Business

David A. Wood

Brigham Young University - School of Accountancy

Date Written: December 4, 2017

Abstract

This study examines how using the internal audit function as a management training ground (MTG) impacts manager’s reliance on internal auditor recommendations. While prior research suggests that using internal audit as a MTG can adversely affect financial reporting quality, external audit fees, and internal audit efficiency, many internal audit functions use this practice. We study how this practice influences another important stakeholder—senior management. Based on survey results of 355 chief audit executives (CAEs), we find that CAEs perceive senior management to be more likely to use recommendations from MTG internal auditors than non-MTG internal auditors. To bolster the validity of these findings and provide evidence as to why this is the case, we conduct two experiments with 147 executives (47 MTurk workers) with an average of about 25 (13) years of experience. The experimental results confirm the survey results. We also find that the key reason why managers rely more on MTG than non-MTG recommendations is that MTG internal auditors are perceived to have more natural ability, which is a key driver in manager’s reliance decision. Taken together, our research provides the first empirical evidence that there are positive consequences to using the internal audit function as a MTG in contrast to the negative consequences previously reported.

Keywords: Internal Audit, Management Training Ground, Managers, Board of Directors, Audit Committee

JEL Classification: M4, M40, M41

Suggested Citation

Carcello, Joseph V. and Eulerich, Marc and Masli, Adi and Wood, David A., The Value to Management of Using the Internal Audit Function as a Management Training Ground (December 4, 2017). Available at SSRN: https://ssrn.com/abstract=2691535 or http://dx.doi.org/10.2139/ssrn.2691535

Joseph V. Carcello

University of Tennessee ( email )

Department of Accounting & Information Management
629 Stokely Management Center
Knoxville, TN 37996-0560
United States
865-974-1757 (Phone)
865-974-4631 (Fax)

Marc Eulerich

University of Duisburg-Essen, Mercator School of Management ( email )

Lotharstrasse 65
Duisburg, 47057
Germany
00492033792600 (Phone)

HOME PAGE: http://www.msm.uni-due.de/ircg

Adi Masli

University of Arkansas - Sam M. Walton College of Business ( email )

Fayetteville, AR 72701
United States

David A. Wood (Contact Author)

Brigham Young University - School of Accountancy ( email )

518 TNRB
Brigham Young University
Provo, UT 84602
United States
801-422-8642 (Phone)
801-422-0621 (Fax)

HOME PAGE: http://marriottschool.byu.edu/employee/employee.cfm?emp=daw44

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